Choosing Between Debt Consolidation Loans And Debt Counseling

When debts begin to mount, and the pressure of clearing them gets beyond what is easily manageable, decisive action is needed. For many, filing for bankruptcy is the first thought to mind, but the consequences of this decision can be difficult to accept. A better choice is a debt consolidation loan, or even turning to a debt counseling company.The advantage of consolidation is that the debt involved is repaid in full. But some savings can be made by opting for counseling services, which usually involve some negotiating with the creditors. But which of the two is the best one to choose?It is a huge weight off your shoulders when debts are finally paid off, but clearing debts effectively is important - that is why the options need to be considered carefully. However, by choosing the right one, the best results can be enjoyed.Why Bankruptcy Is Not An OptionAs has already been mentioned, bankruptcy is often the first solution that debtors will think of to lift the weight of debt off their shoulders. But while successfully filing does mean the debts are gone, there are some reasons why it is not preferred against the likes of a debt consolidation loan.Declaring bankruptcy usually means that the debt is written off in full without any payment made, though terms can be reached where a percentage, say 35%, is repaid. This is similar to debt counseling, where a settlement sum might be agreed at a reduction, but bankruptcy also means the credit record is affected adversely.However, the key reason why bankruptcy is not a good choice is that it can affect your credit rating for as long as a decade, thus impeding the chances of securing a loan later on. Remember, clearing debts effectively is about lifting the pressure with the minimum negative consequences.Considering Debt ConsolidationIn contrast to bankruptcy, creditors are quite happy if a debt consolidation loan is secured. In fact, in many cases, it is the lender owed money that is willing to grant the consolidation loan. The reason is simply that the original debt is cleared in full, so all creditors get their money back with interest.The great advantage of opting for consolidation over debt counseling is that repaying the debt is made less expensive. This is because the various interest rates are replaced by one, and the outstanding balances are combined and bought out by a single manageable sum.The repayment schedule is generally longer than the original debts, thus ensuring that the monthly repayments are lower than the combined total of the pervious loans. So, when clearing debt effectively, consolidation is a good choice.Considering Debt CounselingThere is a catch to choosing a debt consolidation loan, however. The debt is repaid in full, so there is no reduction in the actual debt repaid. There are other ways that can mean less money is paid in clearing the debt.This is the advantage of choosing to go to a debt counseling company. These companies can negotiate a settlement deal with your creditors, then buy out your debt. So, any further repayments are paid directly to the company.However, there are some negative aspects too. For example, the company takes almost complete control of your finances, setting a strict financial budget and repayment schedule that must be adhered to. This is ideal for people unable to make the tough financial decisions, and means clearing debts effectively the hard way – but it does work.